Blog posts of '2025' 'June'

Chart patterns enable traders to anticipate potential trend reversals and structure their trades accordingly. One of the most reliable bullish reversal patterns is the Double Bottom. Identifying this formation early can help traders prepare for upward price movements and avoid short positions near potential market bottoms.

A Double Bottom is a bullish reversal pattern that resembles the letter “W.” It usually forms after a prolonged downtrend, signaling that selling pressure is waning and buyers may soon take control, pushing prices higher.

Anatomy of the Double Bottom Pattern

First Trough: The pattern begins with a strong downward move that reaches a low (the first trough) before bouncing upward. This low represents a support level where buyers begin to show interest.

Second Trough: After the bounce, the price retraces but fails to break significantly below the first trough, forming a second bottom. This second failure to create a new low suggests diminishing bearish strength and growing buyer confidence.

Neckline and Breakout: The high point between the two bottoms is called the neckline. A breakout occurs when the price closes above this neckline with increased volume, confirming the Double Bottom pattern and signaling a potential reversal from bearish to bullish trend.

How to Trade the Double Bottom Pattern

Entry Point

• Enter a long position when the price breaks and closes above the neckline with notable volume.
• Alternatively, wait for a retest of the neckline after the breakout. Enter when the retest holds and the price begins to rise again.
  
• Furthermore, you can also split your position — for example, enter 50% on the breakout and the remaining 50% after a successful neckline retest.
  

Target Price

Two common techniques are used to project a target:

Chart-Based Target:

• Measure the distance from the troughs to the neckline.
• Add this distance to the neckline level to project the upside target.
  
• Target = Neckline + (Neckline – Bottom)
  

Fibonacci Extension or Pivot Points:

• These tools can provide additional profit targets and help confirm resistance levels beyond the initial breakout.

Stop-Loss Placement

• Place the stop-loss just below the second trough to protect against failed breakouts.
• If entering after a retest, a tighter stop just below the neckline can be considered.
  
• Avoid overly tight stops in volatile markets to prevent getting stopped out by minor retracements.
  

Additional Tips

• Double Bottoms are most effective after a prolonged downtrend — in sideways markets, the pattern may lack reliability.
• Volume should typically decrease during the formation of the second trough and increase on the breakout above the neckline.
  
• Confirm the setup with indicators like RSI divergence (higher lows on RSI while price forms equal or lower lows) or a MACD bullish crossover.
  
• A rounded or flatter second bottom adds credibility, showing consistent buyer defence at support levels.
  

Charting Exercise: Switch to a daily chart and scan for potential Double Bottom formations. Clearly mark:

• First and second troughs
• Neckline (resistance between the two bottoms)
  
• Entry point (breakout candle)
  
• Target and stop-loss levels
  

Use horizontal lines for the troughs and neckline. Measure the vertical distance from trough to neckline and project it upwards to estimate a conservative target. Confirm the breakout with a volume surge.

Homework: Study the following stocks and check if a Double Bottom pattern is forming or has already played out:

1. Gujarat Pipavav Port Ltd. (GPPL)

2. Tata Teleservices (Maharashtra) Ltd. (TTML)

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Unlocking Reversals: The Inverse Head and Shoulders Pattern

तांत्रिक विश्लेषणात, काही चार्ट पॅटर्न ट्रेंड रिव्हर्सल्सचा अंदाज लावण्यात त्यांच्या विश्वासार्हतेसाठी वेगळे दिसतात. असाच एक शक्तिशाली तेजीचा उलटेपणा पॅटर्न म्हणजे इनव्हर्स हेड आणि खांदे. चला या पॅटर्नला समजून घेऊया कारण ते लक्षणीय धार प्रदान करू शकते, विशेषतः जेव्हा डाउनट्रेंडपासून अपट्रेंडकडे संभाव्य शिफ्ट पाहते.

इनव्हर्स हेड आणि खांदे पॅटर्न सामान्यतः दीर्घकाळ डाउनट्रेंडनंतर तयार होतो, जो सूचित करतो की विक्रीचा दबाव कमी होत आहे आणि तेजीचा उलटा क्षितिजावर असू शकतो.

पॅटर्न अनोटोमी

१. डावा खांदा: जेव्हा किंमत कमी होते आणि नंतर तेजी येते तेव्हा तयार होते.

२. हेड: एक खोल घसरण येते, त्यानंतर एक कमी कमी, नंतर दुसरी तेजी निर्माण होते.

३. उजवा खांदा: किंमत पुन्हा कमी होते परंतु एक उच्च कमी तयार होते, त्यानंतर दुसरी वरची हालचाल होते.

४. नेकलाइन (प्रतिरोध): डाव्या खांद्या आणि खांद्यानंतरच्या रॅलींचे उच्चांक एक क्षैतिज किंवा किंचित उतार असलेली प्रतिकार रेषा तयार करतात. या नेकलाइनच्या वरचा ब्रेकआउट पॅटर्नची पुष्टी करतो.

ब्रेकआउट आणि रीटेस्ट: की कन्फर्मेशन

किंमत नेकलाइनच्या वर गेल्यावर पॅटर्न पूर्ण होतो - आदर्शपणे वाढलेल्या व्हॉल्यूमवर, बाजारातील भावना मंदीपासून ते तेजीकडे बदलण्याचे संकेत देते.

रीटेस्ट: दुसरी संधी एंट्री

ब्रेकआउटनंतर, किमती अनेकदा नेकलाइनवर परत येतात, ती नवीन सपोर्ट लेव्हल म्हणून चाचणी करतात. ही रीटेस्ट कमी-जोखीम एंट्री संधी देते:

यशस्वी रीटेस्ट (जिथे नेकलाइन धरते आणि किंमत उसळते) रिव्हर्सलमध्ये आत्मविश्वास वाढवते.

ट्रिस्ट नंतर व्यापारी तेजीच्या कॅन्डलस्टिक कन्फर्मेशनवर एंटर करू शकतात.

खोट्या ब्रेकआउट्स किंवा कमी-व्हॉल्यूम मूव्हज फिल्टर करण्यासाठी हे विशेषतः उपयुक्त आहे.

इनव्हर्स हेड अँड शोल्डर्स पॅटर्नचा ट्रेड कसा करायचा
एंट्री पॉइंट
जेव्हा किंमत नेकलाइनच्या वर सॉलिड व्हॉल्यूमसह बंद होते तेव्हा ट्रेडमध्ये प्रवेश करा.
केवळ विक्स किंवा इंट्राडे स्पाइक्ससह खोटे ब्रेकआउट्स टाळून, नेकलाइनच्या वर असलेल्या बुलिश ब्रेकआउट मेणबत्ती शोधा.
एक संतुलित दृष्टिकोन: ब्रेकआउटवर ५०% एंटर करा आणि जोखीम कमी करण्यासाठी पुष्टीकरण मेणबत्तीनंतर उर्वरित ५०% एंटर करा.
ब्रेकआउटची यशस्वी पुनर्चाचणी झाल्यास व्यापारात प्रवेश करण्याची आणखी एक संधी आहे.

टार्गेट किंमत: अपेक्षित किंमत हालचाली प्रक्षेपित करण्यासाठी या पद्धती वापरा:

चार्ट-आधारित लक्ष्य:

हेड (सर्वात कमी बिंदू) पासून नेकलाइनपर्यंतचे उभे अंतर मोजा.

ब्रेकआउट बिंदूमध्ये ते अंतर जोडा.

टार्गेट = नेकलाइन + (नेकलाइन - हेड)

पर्यायी पद्धती:

लक्ष्ये प्रक्षेपित करण्यासाठी फिबोनाची एक्सटेंशन लागू करा.
ब्रेकआउटनंतर संभाव्य प्रतिकार पातळी ओळखण्यासाठी पिव्होट पॉइंट्स वापरा.

स्टॉप-लॉस प्लेसमेंट
जोखीम सहनशीलतेवर अवलंबून, स्टॉप-लॉस उजव्या खांद्याच्या अगदी खाली किंवा हेडच्या अगदी खाली ठेवता येतो.
एक घट्ट स्टॉप-लॉस ब्रेकआउट कॅन्डलचा कमी किंवा ब्रेकआउटपूर्वीचा शेवटचा स्विंग कमी असू शकतो.
अतिरिक्त टिप्स
मागील ट्रेंड: या पॅटर्नच्या आधी दृश्यमान डाउनट्रेंड असणे आवश्यक आहे - ते रिव्हर्सल आहे, कंटिन्युएशन पॅटर्न नाही.
व्हॉल्यूम पुष्टीकरण: वाढत्या व्हॉल्यूमसह ब्रेकआउट मजबूत खरेदी व्याजाची पुष्टी करते.
निर्देशक: तेजीच्या उलटतेला समर्थन देण्यासाठी RSI किंवा MACD वापरा — तेजीच्या विचलनासाठी किंवा सकारात्मक क्रॉसओवरसाठी पहा.

संयम राखतो: पूर्ण पॅटर्न फॉर्म होऊ द्या. नेकलाइन निश्चितपणे तोडल्यानंतरच एंटर करा.

मॅक्रो व्ह्यू: वाढीव विश्वासार्हतेसाठी तुमचे व्यवहार व्यापक बाजार ट्रेंडशी संरेखित करा.

चार्टिंग व्यायाम
आज, दैनिक चार्टवर स्विच करा आणि इनव्हर्स हेड अँड शोल्डर्स फॉर्मेशनसाठी स्कॅनिंग सुरू करा. स्पष्टपणे चिन्हांकित करा:

डावा खांदा, डोके, उजवा खांदा
नेकलाइन
संभाव्य ब्रेकआउट, एंट्री, स्टॉप-लॉस आणि टार्गेट झोन.

गृहपाठ: खालील स्टॉकच्या चार्टचे पुनरावलोकन करा आणि इनव्हर्स हेड अँड शोल्डर्स पॅटर्न उदयास येत आहे का याचे मूल्यांकन करा:
१. दीपक फर्टिलायझर्स अँड पेट्रोकेमिकल्स कॉर्प. लि. (DEEPAKFERT)
२. पूनावाला फिनकॉर्प लि. (पूनावाला)
पुढील किंमत कृती समजून घेण्यासाठी तुम्ही तुमच्या वॉच लिस्टमध्ये स्टॉक देखील जोडू शकता.
अस्वीकरण: हे विश्लेषण पूर्णपणे शैक्षणिक उद्देशाने आहे आणि त्यात कोणतीही शिफारस नाही. कोणताही आर्थिक निर्णय घेण्यापूर्वी कृपया तुमच्या आर्थिक सल्लागाराचा सल्ला घ्या.

In technical analysis, certain chart patterns stand out for their reliability in predicting trend reversals. One such powerful bullish reversal pattern is the Inverse Head and Shoulders. Let’s understanding this pattern as it may provide a significant edge, especially when spotting a potential shift from a downtrend to an uptrend.

The Inverse Head and Shoulders pattern typically forms after a prolonged downtrend, signaling that the selling pressure is waning and a bullish reversal may be on the horizon.

Pattern Anatomy

1. Left Shoulder: Formed when the price drops to a trough and then rallies.

2. Head: A deeper decline follows, creating a lower low, then another rally.

3. Right Shoulder: Price declines again but forms a higher low, followed by another upward move.

4. Neckline (Resistance): The highs of the rallies after the left shoulder and head create a horizontal or slightly sloped resistance line. A breakout above this neckline confirms the pattern.

Breakout and Retest: Key Confirmation

The pattern completes when price breaks above the neckline — ideally on increased volume, signaling a shift in market sentiment from bearish to bullish.

Retest: A Second Chance Entry

After the breakout, prices often retrace back to the neckline, testing it as a new support level. This retest offers a lower-risk entry opportunity:

• A successful retest (where the neckline holds and price bounces) adds confidence to the reversal.
• Traders can enter on a bullish candlestick confirmation after the retest.
  
• This is especially helpful in filtering out false breakouts or low-volume moves.
  

Entry Point

• Enter the trade when the price closes above the neckline with solid volume.
• Look for a bullish breakout candle that holds above the neckline, avoiding false breakouts with only wicks or intraday spikes.
• A balanced approach: enter 50% at breakout, and the remaining 50% after a confirmation candle to reduce risk.
• There is another chance to enter the trade if there is a successful retest of the breakout.

Target Price: Use these methods to project the expected price move:

• Chart-Based Target:

In technical analysis, certain chart patterns stand out for their reliability in predicting trend reversals. One such powerful bullish reversal pattern is the Inverse Head and Shoulders. Let’s understanding this pattern as it may provide a significant edge, especially when spotting a potential shift from a downtrend to an uptrend.

The Inverse Head and Shoulders pattern typically forms after a prolonged downtrend, signaling that the selling pressure is waning and a bullish reversal may be on the horizon.

Pattern Anatomy

1. Left Shoulder: Formed when the price drops to a trough and then rallies.

2. Head: A deeper decline follows, creating a lower low, then another rally.

3. Right Shoulder: Price declines again but forms a higher low, followed by another upward move.

4. Neckline (Resistance): The highs of the rallies after the left shoulder and head create a horizontal or slightly sloped resistance line. A breakout above this neckline confirms the pattern.

Breakout and Retest: Key Confirmation

The pattern completes when price breaks above the neckline — ideally on increased volume, signalling a shift in market sentiment from bearish to bullish.

Retest: A Second Chance Entry

After the breakout, prices often retrace back to the neckline, testing it as a new support level. This retest offers a lower-risk entry opportunity:

• A successful retest (where the neckline holds and price bounces) adds confidence to the reversal.
• Traders can enter on a bullish candlestick confirmation after the retest.
• This is especially helpful in filtering out false breakouts 
• or low-volume moves.

Entry Point

• Enter the trade when the price closes above the neckline with solid volume.
• Look for a bullish breakout candle that holds above the neckline, avoiding false breakouts with only wicks or intraday spikes.
  
• A balanced approach: enter 50% at breakout, and the remaining 50% after a confirmation candle to reduce risk.
  
• There is another chance to enter the trade if there is a successful retest of the breakout.
  

Target Price: Use these methods to project the expected price move:

• Chart-Based Target:

• Measure the vertical distance from the head (lowest point) to the neckline.
• Add that distance to the breakout point.
• Target = Neckline + (Neckline - Head)
• Alternative Methods:

Chart patterns provide traders with valuable clues about potential price movements while doing technical analysis. One of the most reliable continuation patterns is the Cup and Handle formation. Understanding the Cup and Handle pattern can help you anticipate bullish breakouts and plan your entries with precision.

A Cup and Handle is a bullish chart pattern that resembles the shape of a tea cup. It usually appears after a strong uptrend, consolidates in the shape of a rounded bottom (the cup), and forms a smaller downward drift (the handle) before breaking out to new highs.

Anatomy of the Cup and Handle Pattern

Cup Formation: The cup resembles a “U” shape and signifies a period of consolidation after a bullish trend. The price gradually declines and then rises back to the previous high, forming a rounded base. This shows that selling pressure has diminished, and buyers are gradually regaining control.

Handle Formation: Once the cup is complete, a slight pullback forms the handle. This usually appears as a downward or sideways drift, often contained within a small descending channel or wedge. The handle is a final shakeout before the breakout.

Breakout: A breakout occurs when the price closes above the resistance formed at the top of the cup on increased volume. This confirms the pattern and typically leads to a renewed bullish move.

How to Trade the Cup and Handle Pattern

Entry Point

• Enter the trade when the price breaks above the handle’s resistance line on strong volume.
• A high-quality breakout typically involves a decisive close above the resistance (not just a wick) and ideally comes with volume confirmation.
  
• Conservative traders may choose to wait for a confirmation candle above the resistance to reduce the risk of a false breakout. For them another way can be to enter 50% of your quantity at breakout and 50% after a confirmation candle.

Target Price

There are a couple of standard methods to project your profit target:

Chart-Based Target

• Measure the depth of the cup (from the bottom to the resistance level).
• Add this height to the breakout point.
• Target = Breakout Level + (Resistance - Cup Low)

Fibonacci Extension or Pivot Points: These tools can also be used to estimate logical resistance levels or profit-taking zones above the breakout.

Stop-Loss Placement

• Place your stop-loss below the handle’s low to protect against failed breakouts.
• A more aggressive stop could be just below the breakout candle’s low for tighter risk control.
  
• Avoid placing stops too close, especially if the handle formed on low volume, as minor whipsaws are common.
  

Additional Tips

• Ensure the cup has a rounded bottom rather than a sharp V-shape — this signals healthier accumulation.
• The longer the cup formation, the more significant the breakout tends to be.
  
• Use supporting indicators like volume surge, RSI breakout, or MACD crossover to confirm momentum.
  
• These patterns are more reliable in bullish market conditions or strong sectors.
  

Charting Exercise: Switch to a daily chart and start scanning for Cup and Handle formations. Clearly mark:

· Cup bottom and rim (resistance)

· Handle structure (a small “U” or descending channel or wedge)

· Potential Breakout, Entry, Stop-loss, and Target zones

Use chart tools to draw the neckline of the cup and the upper boundary of the handle. Measure the depth of the cup to estimate your target price after breakout. Watch for volume confirmation to validate the breakout.

Homework

Look at the following stocks and identify which one shows signs of a developing or confirmed Cup and Handle pattern:

1. CESC Ltd. (CESC)

2. L&T Finance Ltd. (LTF)

Study the price action, draw the cup and handle zones, and see if the breakout is supported by volume.

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

In technical analysis, chart patterns often provide clues about future price direction. One such highly effective reversal pattern is the Triple Bottom. Whether you're just starting out or already have trading experience, learning to recognize and trade the triple bottom pattern can give you an edge, especially in volatile or trend-reversal conditions.

A Triple Bottom Pattern occurs after a prolonged downtrend, signaling a potential shift from bearish to bullish sentiment. It is formed when the price hits the same support level three times, failing to break below it, and then finally breaks out above the neckline (resistance level), confirming the reversal.

Support Level: This is a horizontal zone where price finds repeated buying interest. In a triple bottom, price touches this support three distinct times with roughly equal lows, indicating a strong demand zone.

Neckline (Resistance): The highs formed between each of the bottoms usually form a horizontal resistance, called the neckline. A breakout above this neckline is the key confirmation signal.

Breakout: The breakout happens when the price convincingly closes above the neckline, often with increased volume, indicating the bears have lost control and bulls are taking over.

How to Trade a Triple Bottom Pattern

Entry Point

• Enter the trade when the price closes above the neckline with strong volume.
• Look for a bullish candle that breaks the neckline and holds above it — not just a wick or intraday spike.
• A better way can be to enter 50% of your quantity at breakout and 50% after a confirmation candle.

Target Price: There are a few ways to estimate the target:

• Chart-based method:

In technical analysis, certain chart patterns stand out for their reliability in predicting trend reversals. One such powerful bullish reversal pattern is the Inverse Head and Shoulders. Let’s understanding this pattern as it may provide a significant edge, especially when spotting a potential shift from a downtrend to an uptrend.

The Inverse Head and Shoulders pattern typically forms after a prolonged downtrend, signaling that the selling pressure is waning and a bullish reversal may be on the horizon.

Pattern Anatomy

1. Left Shoulder: Formed when the price drops to a trough and then rallies.

2. Head: A deeper decline follows, creating a lower low, then another rally.

3. Right Shoulder: Price declines again but forms a higher low, followed by another upward move.

4. Neckline (Resistance): The highs of the rallies after the left shoulder and head create a horizontal or slightly sloped resistance line. A breakout above this neckline confirms the pattern.

Breakout and Retest: Key Confirmation

The pattern completes when price breaks above the neckline — ideally on increased volume, signaling a shift in market sentiment from bearish to bullish.

Retest: A Second Chance Entry

After the breakout, prices often retrace back to the neckline, testing it as a new support level. This retest offers a lower-risk entry opportunity:

• A successful retest (where the neckline holds and price bounces) adds confidence to the reversal.
• Traders can enter on a bullish candlestick confirmation after the retest.
  
• This is especially helpful in filtering out false breakouts or low-volume moves.
  

Entry Point

• Enter the trade when the price closes above the neckline with solid volume.
• Look for a bullish breakout candle that holds above the neckline, avoiding false breakouts with only wicks or intraday spikes.
  
• A balanced approach: enter 50% at breakout, and the remaining 50% after a confirmation candle to reduce risk.
  
• There is another chance to enter the trade if there is a successful retest of the breakout.
  

Target Price: Use these methods to project the expected price move:

• Chart-Based Target:

• Measure the vertical distance from the head (lowest point) to the neckline.
• Add that distance to the breakout point.
• Target = Neckline + (Neckline - Head)
• Alternative Methods:

Chart patterns are essential tools in the arsenal of any technical trader. Among the most powerful continuation patterns is the Flag and Pole formation, which signals the potential for a strong move in the direction of the existing trend. Recognizing this pattern in real-time can help you capture quick gains during trending markets.

The Flag and Pole is a bullish or bearish continuation pattern. It starts with a sharp price move called the pole, followed by a brief consolidation phase that slopes against the prevailing trend (the flag). When the price breaks out of the flag, the trend often resumes with renewed strength.

Anatomy of the Flag and Pole Pattern

Pole Formation: The pole represents a steep and rapid price movement, either upward (bullish flag) or downward (bearish flag). This move is often driven by high volume, strong momentum, or a significant news event.

Flag Formation: After the initial surge, price enters a consolidation phase that resembles a parallelogram or a small channel sloping against the trend. This flag usually forms on lower volume and reflects a temporary pause or profit booking.

Breakout: The pattern is confirmed when the price breaks out of the flag in the direction of the pole (i.e., upward in a bullish flag or downward in a bearish flag). Ideally, this breakout should be accompanied by a volume spike to confirm renewed interest from buyers or sellers.

How to Trade the Flag and Pole Pattern

Entry Point

· Enter the trade when the price breaks out of the flag channel in the direction of the pole on strong volume.

· A bullish flag breakout occurs when the price closes above the flag’s upper boundary.

· A bearish flag breakout occurs when the price closes below the flag’s lower boundary.

· Conservative traders may wait for a confirmation candle to reduce the risk of false breakouts. Alternatively, you can scale in: 50% on breakout and 50% after confirmation.

Target Price

There are two common methods to estimate the price target:

Pole Projection Method:

· Measure the height of the pole.

· Add (for bullish) or subtract (for bearish) this value from the breakout point.

· Target = Breakout Point ± Pole Height

Fibonacci Extension Levels:

Fibonacci extensions and/or pivot levels can help identify logical resistance/support zones for profit-taking.

Stop-Loss Placement

· Place your stop-loss just below the lower boundary of the flag for a bullish flag, or just above the upper boundary for a bearish flag.

· Alternatively, for tighter risk, use the low/high of the breakout candle as your stop-loss.

· Ensure there’s enough room for price fluctuations to avoid premature stop-outs due to minor noise.

Additional Tips

· Volume Surge during the pole formation and at breakout is key. Lack of volume during the flag formation is normal.

· Flags typically last from a few days to a few weeks, depending on the time frame and market context.

· The steeper and cleaner the pole, the more reliable the pattern.

· Combine with indicators like RSI, MACD, or moving averages to validate breakout strength.

· Works well during strong trending phases, especially after earnings, sectoral rallies, or macro news.

Charting Exercise: Pull up a daily chart and identify the following:

· The Pole (steep price move)

· The Flag (consolidation channel)

· Breakout point

· Estimate your Entry, Stop-loss, and Target

Use your charting tools to draw the parallel flag channel and project the pole height from the breakout. Watch closely for volume confirmation during the breakout candle.

Homework

Analyze the following stocks to spot any emerging or completed Flag and Pole patterns:

1. Godrej Industries Ltd. (GODREJIND)

2. Usha Martin Ltd. (USHAMART)

Study the price action, draw the pattern, and see if the breakout is supported by volume.

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.

Chart patterns provide traders with valuable clues about potential price movements while doing technical analysis. One of the most reliable continuation patterns is the Cup and Handle formation. Understanding the Cup and Handle pattern can help you anticipate bullish breakouts and plan your entries with precision.

A Cup and Handle is a bullish chart pattern that resembles the shape of a tea cup. It usually appears after a strong uptrend, consolidates in the shape of a rounded bottom (the cup), and forms a smaller downward drift (the handle) before breaking out to new highs.

Anatomy of the Cup and Handle Pattern

Cup Formation: The cup resembles a “U” shape and signifies a period of consolidation after a bullish trend. The price gradually declines and then rises back to the previous high, forming a rounded base. This shows that selling pressure has diminished, and buyers are gradually regaining control.

Handle Formation: Once the cup is complete, a slight pullback forms the handle. This usually appears as a downward or sideways drift, often contained within a small descending channel or wedge. The handle is a final shakeout before the breakout.

Breakout: A breakout occurs when the price closes above the resistance formed at the top of the cup on increased volume. This confirms the pattern and typically leads to a renewed bullish move.

How to Trade the Cup and Handle Pattern

Entry Point

• Enter the trade when the price breaks above the handle’s resistance line on strong volume.
• A high-quality breakout typically involves a decisive close above the resistance (not just a wick) and ideally comes with volume confirmation.
• Conservative traders may choose to wait for a confirmation candle above the resistance to reduce the risk of a false breakout. For them another way can be to enter 50% of your quantity at breakout and 50% after a confirmation candle.

Target Price

There are a couple of standard methods to project your profit target:

Chart-Based Target:

• Measure the depth of the cup (from the bottom to the resistance level).
• Add this height to the breakout point.

Target = Breakout Level + (Resistance - Cup Low)

Fibonacci Extension or Pivot Points: These tools can also be used to estimate logical resistance levels or profit-taking zones above the breakout.

Stop-Loss Placement

• Place your stop-loss below the handle’s low to protect against failed breakouts.
• A more aggressive stop could be just below the breakout candle’s low for tighter risk control.
  
• Avoid placing stops too close, especially if the handle formed on low volume, as minor whipsaws are common.
  

Additional Tips

• Ensure the cup has a rounded bottom rather than a sharp V-shape — this signals healthier accumulation.
• The longer the cup formation, the more significant the breakout tends to be.
• Use supporting indicators like volume surge, RSI breakout, or MACD crossover to confirm momentum.
• These patterns are more reliable in bullish market conditions or strong sectors.

Charting Exercise: Switch to a weekly chart and start scanning for Cup and Handle formations. Clearly mark:

• Cup bottom and rim (resistance)
• Handle structure (a small “U” or descending channel or wedge)
• Potential Breakout, Entry, Stop-loss, and Target zones

Use chart tools to draw the neckline of the cup and the upper boundary of the handle. Measure the depth of the cup to estimate your target price after breakout. Watch for volume confirmation to validate the breakout.

Homework

Look at the following stocks and identify which one shows signs of a developing or confirmed Cup and Handle pattern:

1. Manappuram Finance Ltd. (MANAPPURAM)

2. Gujarat Pipavav Port Ltd. (GPPL)

Study the price action, draw the cup and handle zones, and see if the breakout is supported by volume.

You may also add the stock to your watch list to understand further price action.

Disclaimer: This analysis is purely for educational purpose and does not contain any recommendation. Please consult your financial advisor before taking any financial decision.